Lack of Clarity Persists on Feeder Vessels for Transit Exemption, 232 Calculations, Lawyers Say

"Air transportation isn't mentioned because the vessel is not flying, but we've gotten some informal confirmation that if the final mode of transportation is air, you're covered," David Murphy said during an April 16 webinar on tariffs hosted by the Coalition for New England Companies for Trade.

Murphy noted that there are still a lot of questions about in-transit as it pertains to the reciprocal tariff exemptions, and another issue beyond determining what the April 2 executive order means by the word "vessel" is what it means exactly for goods to be loaded onto a vessel at the port of loading and in transit on the final mode of transit.

"Brokers are having a hard time with a lot of this because, as you know, goods move from one vessel to another" using feeder vessels, Murphy's colleague Robert Silverman said.

One uncertainty is whether using a feeder vessel still enables the goods to be exempt until May 27 from the April 4 reciprocal tariffs. While the ocean vessel and the feeder vessel may be considered one mode of transportation, it's unclear whether CBP will allow for the use of two different ships.

"A mode is a mode. If it's all ocean, why isn't it all the same? I don't know," Murphy said. "I don't know where the administration is going to go with that, but if we're all the single mode of transportation, you should be okay is what we're saying. But Customs could disagree. There's no answer."

It's also unclear how the tariff exemption applies to transloading and its role as a final mode of transport, Murphy said.

"We've gotten informal confirmation [that] if your final mode of transport is within the time frame, you are okay if it's air. But what happens when your container is transloaded, and it may have left China on or before April 4 but gets transloaded somewhere else, and that transload date is after April 4 or April 9?" Murphy said.

He continued, "There's a lot of confusion on this, because it talks about mode of transportation to brokers and to a lot of importers. ... When you are coming into Vancouver and moving on a train after one of these effective dates, Customs' position is the date of the train ... is the final mode of transportation. This is going to create a lot of problems because of information issues. Importers have certain information, brokers have certain information. [The Automated Manifest System] AMS might show different information than what is understood by either the broker or the importer. So, this is going to play out over the next several weeks."

In addition to discussing in-transit exemption uncertainties, they talked about how importers are continuing to grapple with complying with the Section 232 tariffs on steel and aluminum derivatives amid limited guidance from CBP.

For instance, one client imports a product where parts of it are made in Canada using U.S. melt and steel, but other parts of it are using steel from another country, according to Silverman.

"Is the whole product exempt when it comes back into the United States because part of it is U.S." melt and poured steel, Silverman said, adding that it's also unclear how to factor in the weight and value of the derivative in the calculation. "There's a Section 232 hotline or email you can reach out to. We get answers that don't make a lot of sense. We try to go back again. So that's a very difficult thing."

Another uncertainty is how to calculate the value of the steel or aluminum derivative when complex processing is involved, Silverman continued.

"What if you're buying a metal-content product and then manufacturing it afterwards? Do you add the additional manufacturing cost? What do you do? And Customs has not been giving examples," he said.

The attorneys also discussed on the webinar different strategies that clients are pursuing to reduce tariffs.

One potential action importers may consider to reduce duties is taking advantage of warehouses since the tariffs apply when a good is withdrawn for consumption.

"If you've got goods in a warehouse and the duties go down, it looks like you have an advantage" since the importer has to get approval for a good's release, and that becomes the date of entry, Murphy said. If the duties go up, then the imported good is subject to the increased duties, he added.

"A number of our clients are talking to us about putting goods in a bonded warehouse. If you're going to be subject to 125% Chinese goods ... after May 27, people are going to be searching to put their goods in a bonded warehouse," Silverman said. "I don't think they want to pay 125% on this stuff. It's really, really crazy, and it's going to be in great demand. So our suggestion would be [to] find the bonded warehouse and lock up your capacity as soon as you can."